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Issue 57 – december 2019 www.masterinvestor.co.uk The UK's no.1 free investment publication How to Invest in Medtech In the age of AI plus... Greggs on the go CAN THE BAKER CONTINUE TO RISE? The best and worst funds of 2019 CAN THEY PROVIDE ANY POINTERS FOR 2020? I’m an investor get me out of here! CAN ITV’S WOES BE OVERCOME? Mellon on the Markets WHY THE MASTER INVESTOR IS BUYING DIVIDEND STOCKS
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WELCOME
Dear Reader,
Last month, I was lucky enough to be able to
interview Lord Lee of Trafford, the UK's first
recorded ISA millionaire. Before switching to the Lib
Dems and becoming a peer, Lord Lee was a minister
in Margaret Thatcher's government, and outside
politics he has had a very interesting and successful
career in finance and investment. A lifelong investor,
Lord Lee is also probably one of the most successful private investors I've ever
met.
I would heartily recommend Lord Lee's book, How to Make a Million Slowly,
to anyone who is serious about investing. Lee reminds us that investing – real CONTACTS
investing as opposed to day trading or speculating – is a marathon not a sprint.
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Moreover, and perhaps most encouragingly for those of us who struggle with amanda@masterinvestor.co.uk
numbers, one needn't be overly clever to be a successful investor; but what is
needed is patience and common sense – in that order, says Lee. Editorial Enquries
Lord Lee favours what he terms "proprietorial" businesses where james.faulkner@masterinvestor.co.uk
management and/or the founding family have a large shareholding and can
help "steward" the business through good times and bad. The implication is
that owner-managers with "skin in the game" often do a much better job when
FOLLOW US
it comes to making decisions in the long-term interests of shareholders – with
whom their interests are obviously very well aligned.
To me, Lord Lee's investing style is a reminder that as investors we should
play the long game and try not to get distracted by short-term movements, fads
or indeed political gyrations. Understand what you're investing in, what makes
it special and why you're holding it; buy at a good price; and sit back, relax and
wait for value to out.
You can listen to the full interview with Lord Lee here.
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www.masterinvestor.co.uk | Master Investor is a registered trademark of Master Investor Limited ISSUE 57 – DECEMBER 2019 | 3
CONTENTS
Issue 57 – december 2019 www.masterinvestor.co.uk
ISSUE 57 – DECEMBER 2019
The UK's no.1 free investment publication
How to Invest in
Medtech
In the age of AI CoVER FEATURE
plus...
Greggs on the go
010 Medical technology in the age of AI
CAN THE BAKER CONTINUE TO RISE?
Victor Hill explains how the future of healthcare might belong to the engineers
The best and worst funds of 2019
CAN THEY PROVIDE ANY POINTERS FOR 2020?
rather than the medics.
I’m an investor get me out of here!
CAN ITV’S WOES BE OVERCOME?
Mellon on the Markets
WHY THE MASTER INVESTOR IS BUYING DIVIDEND STOCKS
on the cover
006 Mellon on the Markets
Inside the mind of the Master Investor:
Influential British investor Jim Mellon
reveals his latest thoughts on the
markets.
046 Funds and Trusts in
Focus – The best and
worst performing funds
of 2019
After another roller coaster year, Nick
Sudbury examines the best and worst All other topics
performing funds of 2019 to see if they
can provide any pointers for 2020.
020 Portfolio Intelligence – The IPO market: Alive and kicking
or barely breathing?
062 Quality Investor –
Greggs on the go The IPO market has had a tough time of late. But there are some interesting
goings-on that investors should be aware of. Mark Watson-Mitchell investigates.
Greggs has shown a remarkable
trading and share-price performance of
late – but can it continue? Andrew Latto
investigates.
070 Stocks in Focus – ITV:
challenges and
opportunities
Robert Stephens discusses how ITV's
ongoing financial challenges could
provide long-term investors with a
buying opportunity.
026 From Acorns to Oak Trees – Choice IPOs to boost your
portfolio
Regardless of the dearth of new listings, there are still a number of recent issues
which are worthy of consideration. Richard Gill, CFA, looks at two of them.
4 | ISSUE 57 – DECEMBER 2019 Master Investor is a registered trademark of Master Investor Limited | www.masterinvestor.co.uk
032 PARTNER CONTENT – Is the UK doomed without big tech
players?
074 Book Review –
Derivatives in a Day
Fund manager James Henderson challenges the consensus that the UK is destined to Richard Gill reviews Derivatives in a
lag behind the US, owing to the absence of large-cap tech companies. Day, a book which provides investors
and finance professionals with an
introduction to what can often be seen
034 The Macro Investor – How to play the steepening of the
yield curve
as a complicated market.
As the cycle lengthens, investors should prepare to jump ship from the equity
market towards the safety of bonds. In the meantime, they can set a curve-
steepener trade.
Country Gate Productions / Shutterstock.com
040 Chart Navigator – How to read the most basic charting
signals
Trend following is the core principle of charting but so many traders and investors 078 The Final Word –
A great deal of ruin
seem to forget just how powerful it can be, writes David Jones.
The December General Election will
arguably be the most important in
052 Dividend Hunter – Marks & Spencer: the destroyer of
shareholder value
our lifetime. Its implications, both
economically and politically, will be
profound, argues Tim Price.
John Kingham of UK Value Investor explains why Marks & Spencer has been a
long-term destroyer of shareholder value and reveals how you can avoid investing
in similar situations.
082 Investor Events Diary
All the hottest upcoming investor
Sorbis / Shutterstock.com events in December and beyond.
058 Forensic Forex – Has gold lost its shine?
The summer saw some sharp moves in precious metals, as investors fretted about 084 Markets in Focus
economic uncertainty – but since then these markets have drifted. Is there still a Market data for the month of
reason for investors to buy gold? November.
www.masterinvestor.co.uk | Master Investor is a registered trademark of Master Investor Limited ISSUE 57 – DECEMBER 2019 | 5
BY JIM MELLON
mellon on
the markets
Inside the mind of the Master Investor: influential British investor, Jim Mellon, reveals his
latest thoughts on the markets.
It's been a busy old month, what But while we wait for sufficient Janus Henderson, the fund
with Longevity Week and in companies to become investible managers, have pointed out that
particular the Longevity Forum in in these areas – and they will – we global dividends have continued
London, the MoneyWeek Wealth need to make some money for our to rise, even as earnings have
Summit and a shareholder meeting daily bread. stalled. Globally, they forecast
for Juvenescence. Coupled with that dividends will grow a shade
some stuff on Agronomics, it's Earning our daily bread under 9% in 2019, to £1.1 trillion
been exhausting and I am looking Regular readers will know that I – approximately a payout of 46%
forward to a week of gentle book favour dividend yielding stocks of total global earnings. This is a
editing in Berlin. After that, I'm off to over internet-based growth stocks comfortable ratio but disguises
the US for two conferences – then currently; that I disdain low yielding some examples of companies
the Christmas round of joy and bonds; and that I am a big fan where so-called dividend cover,
(mostly) happiness! of gold and silver. Unless there which is the capacity of companies
At the MoneyWeek summit, and is a collapse in earnings across to continue paying generous
at our own company's quarterly the board, due to some massive dividends, is perilously close to
meeting in Berlin, I explained that economic recession (and although being exhausted. In fact, in the UK,
I am becoming particularly keen there are macro clouds, this isn't the ratio isn't particularly wonderful,
on thematic investment, with the likely in the short term), most big which is why investors have to be
three major investible themes being companies with juicy dividend yields careful.
climate change, clean meat and the should be able to maintain their Companies with ridiculously
modern agricultural revolution – as payouts, and are therefore a good high yields are usually (not always)
well as, of course, the biggie which buy. stressed and likely to cut their
is likely to affect everything − the payouts – or even get rid of them.
science of longevity. Companies with excessively high
Climate change is hard, because debt are to be avoided, especially if
returns are being compressed, but the debt is keyed to adverse macro
the other two should be included trends (eg to retail property).
in everyone's portfolio. As part of This will narrow the field
London Longevity Week, Master considerably – even amongst the
Investor held a sold-out day on biggest companies. It is instructive
longevity, and they will be doing one that over a quarter of FTSE 100
on agritech and clean meat in the companies yield over 6%, indicating
near future. either massive mispricing of
6 | ISSUE 57 – DECEMBER 2019 Master Investor is a registered trademark of Master Investor Limited | www.masterinvestor.co.uk
MELLON ON THE MARKETS
“WE ARE GRADUALLY
BUILDING UP OUR
DIVIDEND PORTFOLIO,
WITH A MIXTURE OF
UK AND OVERSEAS
SHARES.”
www.masterinvestor.co.uk | Master Investor is a registered trademark of Master Investor Limited ISSUE 57 – DECEMBER 2019 | 7
MELLON ON THE MARKETS
“NO, YOU WON’T GET RICH WITH THEM, BUT YOU
SHOULD GET A RETURN THAT IS SIGNIFICANTLY ABOVE
INFLATION AND A BIT OF CAPITAL GAIN THROWN IN.”
equities versus bonds, or something
fundamentally wrong with the
companies. Most likely, it's a bit of
both.
For our own part, we are gradually
building up our dividend portfolio,
with a mixture of UK and overseas
shares. We bear in mind that many
UK big companies get the bulk of their
earnings overseas so are effectively
international. It should also be noted Fasttailwind / Shutterstock.com
that on holdings in US stocks, there is
a withholding tax of 30% on dividends effectively) is cheap, well-run and
– on Japanese stocks it's 15% − which although uncomfortable to fly on, a
should be taken into account when good place to park cash. Similarly, IAG
making your final cut. (LON:IAG), owner of BA, is cheap and
is at long last getting better planes
Building a dividend and, hopefully, an improved service.
portfolio Many is the time I have vowed to Willy Barton / Shutterstock.com
AJ Bell suggests that the FTSE 100 never fly BA again, only to have to trot
currently yields 4.8% and is covered back onto one of their aircraft due to with them, but you should get a return
about 1.6x, which is a little tight. This a lack of viable alternatives. I'm not that is significantly above inflation and
is a significant reduction in coverage keen on long detours. a bit of capital gain thrown in.
over the past few years. But there Marston's (LON:MARS), the pub Rio Tinto (LON:RIO) and BHP
are still safe havens with dividends of company, looks similar to Greene (LON:BHP) are excellent dividend
significance out there, and I will give King (recently acquired) to me, and yielders and I would hold them, as
you a few examples which I favour. with a yield above 6% and surely inflation is surely going to rise. But
BP (LON:BP.) is one, as is Lloyd's the prospect of a takeover, it is an the main thing for inflation is – you
Bank. We are not going totally green interesting one to hold. Other US guessed it – gold, and any opportunity
any time soon and BP looks the best holdings include GM (NYSE:GM) and to load up on it, its derivatives or
of the oil majors to me, with a near 6% Gilead (NASDAQ:GILD), the big drug anything related to it that isn't run by
yield. Lloyds (LON:LLOY) has a similar company with a yield approaching fraudsters – well, I'd go for it.
yield and with PPI almost behind it, 4%. I also retain a position in Avation I would also load up on sterling,
and both a very strong balance sheet (LON:AVAP), the aircraft-leasing particularly against the US dollar.
and position in the UK domestic company listed in the UK. Boris will romp the election and the
market, along with almost no overseas I think all of these, along with pound will go up 5% overnight.
exposure, I am a happy holder. BT (LON:BT.A), Shell (LON:RDSA),
Delta Airlines (NYSE:DAL) in the British Land (LON:BLND) and Great Happy Hunting!
US (with a very valuable frequent-flyer Portland Estates (LON:GPOR) are
franchise business – selling points useful 'bankers'. No, you won't get rich Jim Mellon
About Jim
Jim is an entrepreneur with a flair for identifying emerging global trends enabling him to build a worldwide
business empire. He is amongst the top 10% in the "Sunday Times Rich List" (Britain's equivalent to the Forbes
list). He is often described as the British Warren Buffett and he predicted the Credit Crunch of 2007-08 in a book
entitled Wake Up! Survive and Prosper in the Coming Economic Turmoil. Jim followed this with The Top 10 Investments
for the Next 10 Years (2008) and subsequently Cracking the Code (2012), Fast Forward (2014) and, most recently,
Juvenescence (2017). His monthly "Mellon on the Markets" column in Master Investor Magazine has gained him cult
status among investors. He holds a master's degree in Politics, Philosophy and Economics from Oxford University.
He is on the Board of Trustees of the Buck Institute in California, a trustee of the Biogerontology Institute, and a
Fellow of Oriel College, Oxford.
8 | ISSUE 57 – DECEMBER 2019 Master Investor is a registered trademark of Master Investor Limited | www.masterinvestor.co.uk
THE EDGE
AUTUMN 2019 EDITION
FREE
O W N L OA D
D
READ ONLINE: masterinvestor.co.uk/magazine
BY VICTOR HILL
cover feature
medical
technology
in the age of AI
Victor Hill explains how the future of healthcare might belong to the engineers rather than
the medics.
New approaches to old awaiting approval from the UK's have any of the toxic side effects
maladies Medicines and Healthcare Products associated with radiotherapy and
New technologies are emerging Regulatory Agency. According chemotherapy.
rapidly to help us improve our to one report, these are likely to Malaria naturally becomes
understanding of what is going on start next year. Tests will begin in magnetic when it enters the body
inside our bodies – and then to treat 2020, followed by trials to see if because it targets iron-rich red
what is wrong. the device can eliminate sepsis- blood cells. But cancer cells do not
Dr George Frodsham, founder causing bacteria. But, in principle, all circulate in the blood, as some
and chief executive of MediSieve anything that can bind to the reside in bone marrow and lymph
− a spin-off from University magnetic nanoparticles, such as nodes. The only way to cure blood
College, London, has proposed poisons, pathogens, viruses and cancers such as leukaemia is to
a revolutionary new approach bacteria could be removed from the eliminate these cells completely.
to the treatment of a range of bloodstream in a process akin to Dr Frodsham won the
conditions, including leukaemia, dialysis. Biotechnology and Biological
sepsis and malaria. While studying Essentially, the patient's blood Sciences Research Council
how magnetic nanoparticles can be would be extracted and infused Innovation of the Year award.
bound to cells in the body so that with microscopic magnetic particles He hopes that a new generation
they can show up on scanners, he which bind to target disease of engineers will find technological
realised that if it were possible to cells. Those substances are then solutions to medical problems
magnetise cells for imaging, it might extracted and the purified blood rather than simply relying on
also be possible to suck them out of is pumped back into the patient's pharmacology. So, the future
human blood. body. The whole process would of healthcare might belong to
The first human trials of this be likely to take between two the engineers rather than the
medical technology are currently to four hours and would not medics.
10 | ISSUE 57 – DECEMBER 2019 Master Investor is a registered trademark of Master Investor Limited | www.masterinvestor.co.ukCOVER FEATURE
“THE FUTURE OF HEALTHCARE THEN
MIGHT BELONG TO THE ENGINEERS
RATHER THAN THE MEDICS.”
www.masterinvestor.co.uk | Master Investor is a registered trademark of Master Investor Limited ISSUE 57 – DECEMBER 2019 | 11COVER FEATURE
The African swine fever pandemic: a UK biotech player is on the case
Animal healthcare never attracts the same level of publicity as the human type. It hasn't been headline news in the
UK but it has dominated the media across Asia. The outbreak of so-called African swine fever has caused mayhem
in China and Vietnam. Last month the World Health Organisation (WHO) warned that one in four pigs worldwide
might die in this epidemic. Fortunately for us, unlike in the case of bird flu, African swine fever poses no risk to
humans. (Or so we are told: genetically speaking, humans have much in common with pigs).
The mortality rate for infected pigs is 100 percent and there is no available vaccine. It is easily transmitted via
live animals or through parasites but can even survive several months in processed meats. The animals die within
a few days of being infected.
China has, or rather had, an estimated 700 million pigs – many of which are kept in the back yards of rural
households. Pork is the main source of animal protein in the Chinese diet. The price of pork in China has nearly
tripled in the last 12 months, as about 45 percent of the pig population has perished.
The disease has manifested itself in 50 countries across Europe and Asia, including Belgium and Northern
Ireland. British biotech company Genus (LON:GNS), based in Hampshire, is on the case. Genus specialises in
improving the quality of breeding herds. Its website states: "We provide farmers with superior genetics that enable
them to produce higher quality animal protein more efficiently". They do that by analysing animals' DNA and
looking for markers linked to desirable characteristics. They then select animals with the strongest genetic profile
and breed them to produce better offspring, in a continuous cycle. They distribute these genetically superior
animals to customers in the form of breeding animals, semen or embryos.
Getting the Chinese pig population back to where it was will take at least three years. When Russia was afflicted
by an equivalent outbreak 10 years ago, the authorities used the crisis to modernise the industry and to raise
standards. If the Chinese take the same approach, that could be good news for Genus and others.
Google enters the
healthcare data bonanza
Last month it was revealed that Google
has been collecting the personal
healthcare information of millions
of Americans under a scheme called
Project Nightingale (presumably named
after the iconic 19th century clinician,
Florence Nightingale). Google has
partnered with Ascension, the second-
largest healthcare provider in the US,
to gather data on 20 million patients
in 21 states. Another 30 million patient
records may be next. One outcome
of Project Nightingale is likely to be
that Google will be able to build a
healthcare search engine for hospitals.
The controversy arises because
patients and doctors were not told
that the data was being passed on.
According to the Wall Street Journal,
at least 150 Google employees
have access to this data. A cache of
“LAST MONTH IT WAS REVEALED THAT
documents relating to the project was GOOGLE HAS BEEN COLLECTING THE
anonymously posted on the internet PERSONAL HEALTHCARE INFORMATION OF
by a whistle-blower who stated
MILLIONS OF AMERICANS UNDER A SCHEME
that: "Google is secretly transferring
data to its own servers without CALLED PROJECT NIGHTINGALE.”
patient knowledge or consent". But
Google and Ascension issued a joint
statement to the effect that the project will not be combined with any Google on 1 November. When Google bought
did not breach the Health Insurance customer data". the smartphone company Nest five
Portability and Accountability Act, What makes these revelations years ago it made no mention of what
which governs the management of more concerning is that they follow it would do with customers' data. But,
medical data in the US. Google added on from Google's purchase of Fitbit on buying Fitbit, Google thought it
that patient information "cannot and (NYSE:FIT) for $2.1 billion, announced necessary to go to lengths to dispel
12 | ISSUE 57 – DECEMBER 2019 Master Investor is a registered trademark of Master Investor Limited | www.masterinvestor.co.ukCOVER FEATURE
“DEEPMIND USED THE MEDICAL RECORDS OF OVER 700,000
US VETERANS TO DEVELOP AN ALGORITHM THAT SPOTS 60
PERCENT OF THOSE WHO WILL GO ON TO DEVELOP AKI.”
down projects which are not working.
One example was the tech giant's
disastrous acquisition of Motorola in
2011. Google sold the company three
years later for a fraction of the $12.5
billion that it paid. For this reason,
consumers should be cautious about
Google's purchase of Fitbit.
Fitbit was one of the first players
in the wearable-technology space
and has possibly the most vibrant
brand. Fitbit grew partially through
acquisition – it bought Silicon Valley
'star' Pebble and then Vector, a
Romanian rival. But it suffered after
Apple (NASDAQ:AAPL), Samsung
(KRX: 005930) and Huawei brought
out competing devices. By the time
users' fears that the medical data working with Imperial College, London that Google swooped, Fitbit's shares
collected by their smartwatches would to devise a similar alert app for sepsis had fallen to just over $3 – down
not be used inappropriately. (formerly termed blood poisoning). from a peak of around $50 in 2015.
Also of concern: last year Google The number of people developing If Google had not made the move,
announced plans to absorb the health sepsis is increasing, with around no doubt one of the other tech
division of DeepMind Technologies, 123,000 cases each year in England behemoths would have bought
the British AI laboratory that it bought and an estimated 37,000 deaths the company. Indeed, Fitbit tells
in 2014, into a new unit called Google according to NHS England. a cautionary tale for any investor
Health. This move broke a previous DeepMind has also worked with interested in the tech sector.
promise that patient data would never Moorfields Eye Hospital, in London, to It is probable that Google may wish
be integrated with Google's other develop a system that can anticipate to integrate some of Fitbit's fitness-
services. the onset of macular degeneration. tracking technology into its Android
DeepMind has collaborated with In July 2017, however, the UK smartphone operating system. In
the Royal Free Hospital in London, Information Commissioner ruled that that way, smartphones of the future
amongst others, in order to develop the agreement between DeepMind will no doubt collect all kind of health
an app called Streams that detects and the Royal Free did not comply metrics – from blood pressure to body
kidney injury two days before it with the UK's Data Protection Act. composition – in real time. The big
happens. The app texts the patient's Google is notoriously ruthless question is what the company will do
doctor an alert if there is any about changing strategy or closing with all the data generated thereby.
imminent deterioration in the patient's
condition. That could save the lives
of up to 30,000 British citizens a year
given that around 100,000 people
in the UK die each year from Acute
Kidney Injury (AKI). This occurs when
organs stop functioning correctly and
there is a build-up of waste material in
the blood.
DeepMind used the medical
records of over 700,000 US veterans
to develop an algorithm that spots
60 percent of those who will go on to
develop AKI. The NHS reckons that 30
percent of AKI deaths are preventable
if caught early – hence the 30,000
figure. The DeepMind team is now PixieMe / Shutterstock.com
www.masterinvestor.co.uk | Master Investor is a registered trademark of Master Investor Limited ISSUE 57 – DECEMBER 2019 | 13COVER FEATURE
Why medical data is maintaining patient records by the
valuable million since it was first set up in 1948
Today a test for Parkinson's – and digitally for more than 20 years. “THE NHS,
disease developed by Medopad, Few countries have large numbers of
a London-based start-up and cradle-to-grave health records that POTENTIALLY,
Chinese technology giant Tencent could be used for medical research. If COULD BE THE
(SEHK:700) takes just a few minutes. this data could be effectively mined,
A smartphone camera can scan a then it could be established precisely GREATEST
patient's hand and body movements. which risk factors are associated REPOSITORY OF
Then an algorithm will determine if with particular health outcomes.
the disease is present based on those And the relative effectiveness of MEDICAL DATA ON
movements. pharmaceutical products could be THE PLANET.”
But in order to develop that exactly evaluated.
algorithm, it was necessary to analyse According to a recent report
millions of images of how people with from consultants EY, the NHS could
Parkinson's disease move. In this case, generate £10 billion a year in revenues Last month New Scientist revealed,
the data did not come from the NHS; and cost savings, by opening up following a Freedom of Information
rather it was collected by Tencent in its 55 million plus medical records request, that numerous NHS trusts
China. Furthermore, a drug called to researchers. This, however, is (which are the operators of one or
Terazosin was also found to prevent controversial. Although any such more hospitals in each locality) had
or mitigate the death of nerve cells data would naturally be anonymised, agreed to sign five-year data-sharing
during the progression of Parkinson's opinion polls suggest that many agreements with Google. It is likely
− even though this drug was originally NHS patients do not trust the NHS that under these agreements, Google
developed to treat benign prostate to keep their data safe as a result of will make its Streams kidney-disease
enlargement. past leaks. Further, some people fear detecting app available for free (up to
Yet the NHS, potentially, could be the consequences of medical data a certain use limit).
the greatest repository of medical getting into the hands of insurance Amazon (NASDAQ:AMZN) secured
data on the planet. It has been companies. I can quite imagine that a deal with the NHS in July this year,
by using our medical data, each to enable patients to answer simple
one of us could be attributed an health questions (probably over the
The UK's NHS: poor estimated life expectancy. No doubt telephone) posed by an Alexa-type
outcomes pension companies (especially annuity virtual assistant.
providers) would be keen to see such Under the pro-tech Health
A recent World Health data. Secretary Matt Hancock, the NHS
Organisation report placed Great Given that there is a general has launched a new technology
Britain at the bottom of the league election underway in the UK as I write programme called NHSX which will,
of seven advanced nations in this, and with the NHS being one of in due course, operate an AI lab.
terms of cancer survival rates. The the dominant campaign issues, the The sum of £250 million in funding
study looked at cancers affecting idea that the NHS might sell data has been pledged towards this
the oesophagus, stomach, colon, to third parties would offend those end. Prospectively, NHSX will try to
rectum, lungs and ovaries in whose mantra is that the NHS is "not generate revenues by cooperating
Australia, Canada, New Zealand, for sale" (and especially not to the with the private sector. These would
Norway, Denmark, Ireland and the Americans!). And who owns that data? be reinvested in front-line services.
UK. It is regrettable that this in not Does it really belong to the NHS, or to One issue, voiced by some insiders, is
more to the fore in the current its patients? that NHS management is not equal in
general-election campaign.
One factor behind the
underperformance of the NHS is
that cancer care must compete
with other maladies. There is now
an epidemic of Type 2 Diabetes
driven partially by a rise in
obesity. One eighth of the entire
NHS drugs budget in 2018-19 was
spent on diabetes drugs. That
amounted to £540 million. One
in 10 of all patients now admitted
to hospital suffer from Type 2
diabetes. As a result, hundreds of
thousands of people have been
put on the Diabetes Prevention
Programme.
14 | ISSUE 57 – DECEMBER 2019 Master Investor is a registered trademark of Master Investor Limited | www.masterinvestor.co.ukCOVER FEATURE
Fitness trackers and the
fight against diabetes
In August, the NHS announced
that overweight patients at risk
of developing diabetes are to be
given Fitbit-style tracker devices
to help stave off the disease. Over
40,000 people were provided
Nujjer wristband trackers as
part of the Diabetes Prevention
Programme. These devices
monitor activity, sleep patterns
and eating frequency. Nearly four
million people in England alone
suffer from diabetes and the
condition is responsible for over
9,000 limb amputations per year.
negotiating skills to the slick execs of Neuropeptides – an six amino acids, can be rubbed into
the tech titans. Their main concern is alternative to drugs? the skin. Neuropeptides are small
to avoid any controversy that would Neuropeptide dihexa (ND) was protein-like molecules which help
open the NHS up to criticism. developed by Washington State neurons in the brain to communicate
But the potential is huge. Soon University to combat Alzheimer's with one another. They are the focus
diagnostic apps will be able to disease and cognitive impairment. of a new branch of medicine called
predict how long patients are likely It works by slowing cell death and biologics which uses small molecules,
to remain in hospital and, in the case suppressing enzymes that destroy the particularly strings of amino acids,
of for example a flu epidemic, how brain chemicals which are associated which are already present in the
many admissions will take place with memory and learning. It has human metabolism. Using these, the
over coming weeks and months. In been granted initial approval by the body can heal itself without resorting
this way hospital management will Food and Drug Administration (FDA) to drugs.
become much more efficient and cost- in the US further to clinical trials. While ND was developed to treat
effective. The peptide, which consists of just dementia and traumatic brain injury,
it has also been shown to increase
the cognitive power of normally
Facebook, Apple and the fitness and health. More than half abled people. For example, if you
newbies... of the audience put up their hands. are learning to play a new musical
US sports manufacturer Under instrument or learning a new
Facebook recently launched its Armour is one of many providers language, they could help you make
own "preventive healthcare" which are integrating gym wear with more rapid progress.
mobile app in the US. And Apple gadgets – for example, T-shirts that A biotech company by the name of
has added health-detection measure your fitness levels and Apeiron Biologics is working on this
features to its Apple Watch which running shoes that analyse your product. Apeiron is a privately held
give users, amongst other things, gait. Sensoria, a start-up based in European biotech company based in
the ability to conduct their own Redmond, Washington state, in the Vienna. It focuses on the discovery
electrocardiogram (ECG) test. US, has developed smart socks for and development of novel cancer
The 'wearables' market – joggers which provide real-time immunotherapies. Currently, peptides
which covers fitness wristbands, feedback on your running style. are only legally prescribed in the US.
smartwatches and smart clothing (This writer would find that most They are illegal in the UK and Europe.
(including a MasterCard inserted irritating – I just need a device which As well as ND, other neuropeptides
in a cufflink – yes, it's happening congratulates me for running at prescribed to boost brain power
thanks to a start-up called all!). include cerebrolysin which is
DressCode) is expected to be Seriously, though, e-textiles (ie apparently derived from pigs' brains.
worth £40 billion worldwide in garments that measure muscle This is claimed to reduce amyloid
2022 – up from £16 billion in 2016. activity, body temperature and beta – the sticky plaques found in
At a recent Master Investor event respiration, and which send that the brains of Alzheimer sufferers.
in London I asked the audience data to a central database) are A neuropeptide nasal spray, FGL, is
which of them were wearing a surely just around the corner. Check currently in second-phase clinical
wearable device to track their out Id TechX. trials. This can help repair the myelin
sheaths around nerve cells which are
www.masterinvestor.co.uk | Master Investor is a registered trademark of Master Investor Limited ISSUE 57 – DECEMBER 2019 | 15COVER FEATURE
damaged by multiple sclerosis. Also,
the brain molecule RG3 increases the
Sensyne trusts can be used to develop
body's ability to manage free radicals
new apps or research projects by
– unstable atoms that damage cells,
The health-technology firm third parties. NHS trusts which
causing illness and ageing.
Sensyne Health PLC (LON:SENS) sign up with Sensyme receive a
Fabian Foelsch of BRAINEFFECT,
was launched on AIM last year share of any revenues generated
a company that sells supplements
where it raised £60 million. by their data. They also become
which enhance mental capacity, told
Sensyme was founded by serial shareholders in Sensyme (about 10
the Biohackers Summit in Helsinki last
medical-technology entrepreneur percent of the shares are owned by
month that people will increasingly
Paul (Lord) Drayson who was NHS trusts). Lord Drayson claims
need brain drugs in the future, in
also the founder of PowderJect that Sensyne is already a world
order to keep up with the pace of
Pharmaceuticals, which was leader in computer science and
change of technology.
acquired by Chiron Corp in 2003. artificial intelligence. The initial
(Chiron was acquired by Novartis launch price in November 2018 was
(VXP:NOV) in 2006). Sensyme has 185 pence. At the time of writing,
The little known biotech
developed a technology 'sandbox' the shares are trading at 102.5
hub blazing a trail in
where patient data from NHS pence.
cancer research
When we think about the biotech
sector in the UK we think of
Cambridge (which is home to about
430 life-science companies) – not
Stevenage. But Stevenage for the last
year has been home to the Cell and
Gene Therapy Catapult. This body has
been tasked by government, to the
tune of £50 million, to facilitate the
commercialisation of cell-and-gene
therapy (CGT) treatments, many of
which have been in development
for decades. There are already
five companies using the centre
– four British and one American
(the US-listed TCR2 Therapeutics
(NASDAQ:TCRR), which has its
headquarters in Boston). More are
likely to follow.
Gene therapy, cell therapy and
gene editing are three different
techniques which share the same
goal; to cure diseases by altering our
genomes. While gene editing is still
in the early stages and will use new
advances in CRISPR technology, gene
and cell therapy are now taking off. In
fact, both the FDA and the European
Medicines Agency have boosted staff
numbers in order to cope with the
expected flood of new applications.
Babylon Healthcare
Babylon provides an online
consultation service and an app
that evaluates symptoms. It sells
its services to the NHS through
a business called GP at Hand.
Although the service has been
praised by UK Health Secretary
Matt Hancock, others have
claimed that Babylon is creating a
funding imbalance.
16 | ISSUE 57 – DECEMBER 2019 Master Investor is a registered trademark of Master Investor Limited | www.masterinvestor.co.ukCOVER FEATURE
“IT IS ESTIMATED THAT IN EUROPE, CGT ATTRACTED
$2.2 BILLION IN INVESTMENT LAST YEAR – A 40 PERCENT
RISE ON THE PREVIOUS YEAR. THERE ARE NOW 241 GENE-
THERAPY DEVELOPERS ACROSS THE EU, 70 OF WHICH ARE
HEADQUARTERED IN THE UK.”
It is estimated that in Europe, CGT therapy was approved by the FDA in
Cambridge UK: an attracted $2.2 billion in investment May. Analysts believe that it could
international biotech last year – a 40 percent rise on the generate revenues of $2 billion a
hub previous year. There are now 241 year for Novartis. Similarly, earlier
gene-therapy developers across the this year, Bristol Myers Squib
As a biotech hub, Cambridge is EU, 70 of which are headquartered
surpassed only by Silicon Valley in the UK. Their targets are firstly
and Boston. The Babraham people who suffer from debilitating The Hundred Thousand
Research Campus is home genetic conditions (cystic fibrosis, Genome Project
to a host of start-ups which Huntingdon's etc.) and secondly
work alongside Cambridge's cancer patients. At present, the focus The UK government has
two great research hospitals in Stevenage is on research and sponsored a project called the
(Addenbrooke's and Papworth). the challenge will be to scale up for 100,000 Genomes Project. This is
The biggest near-unicorn at production. sequencing the genomes that
Babraham is Kymab which is Many of those CGT-therapy have been decoded for a similar
working on antibody-based developers will be snapped up number of NHS patients (with
therapies. On a smaller scale, by the pharmaceutical giants their consent). The database is
Closed Loop Medicine has as their therapies get closer to open only to approved scientists.
developed technology that tracks commercialisation. Last year Novartis Dame Sally Davies, Chief Medical
how a drug affects a patient (VTX:NOVN) paid $9 billion to acquire Officer, has described it as "a
and evaluates whether the Avexis, the producer of Zolgensma, reading library, not a lending
prescription should be altered. a gene therapy for children with library".
spinal muscular atrophy. That
www.masterinvestor.co.uk | Master Investor is a registered trademark of Master Investor Limited ISSUE 57 – DECEMBER 2019 | 17COVER FEATURE
(NYSE:BMY) paid $74 billion to buy
IBM: Now a healthcare healthcare outcomes. That said, a Celgene which has numerous cancer
play, too lot of Americans are ultra-sensitive cell therapies in the pipeline. Roche
(quite naturally) about admitting (VTX:RO) of Switzerland and Biogen
Possibly the biggest medical to a drug habit and particularly (NASDAQ:BIIB) in the US have also
database of all is the IBM opioid abuse (which is rife). Many purchased gene-therapy developers
(NYSE:IBM) Watson database Americans argue that you cannot this year.
which contains about 240 million anonymise health records – each Here in the UK, there are
medical records. This was deployed one identifies its owner as does a a number of companies with
to compare the path of 2,880 fingerprint. Even your vaccination exciting CGT pipelines. Freeline
Parkinson's sufferers who took history will place you in time and Therapeutics, based at the Catapult
Terazosin (see previous reference) space in ways that the algorithms in Stevenage, is developing gene
and compared their progress to will interpret. therapy for haemophilia. Autolus
those who took another drug. The other problem is that, as (NASDAQ:AUTL) (a spin-out of UCL),
Terazosin won out. we know, cyber-security risks are Adaptimmune (NASDAQ:ADAP) (a
In America there is – arguably – one of the major challenges of spin-out of Oxford University) and Cell
more widespread popular support our time and will only get worse. Medica are all developing cancer cell
for the systematic data mining of However securely we construct our therapies. Another British unicorn is
healthcare databases than in the healthcare databases, we can be Oxford Biomedica which supplies the
UK and in Europe. This is because sure that someone out there will try virus vectors that Novartis uses for
there is a strong perception to hack them. its gene therapies. All told, the UK is
that, over time, this will benefit well-positioned to ride the wave of
regenerative medicine which I have
written about recently.
The AI blood test that
can detect brain tumours
more quickly
Scientists at the University of
Edinburgh have developed a blood
test which detects tumours, and which
might first be used to identify brain
cancer much sooner than is currently
possible. The research team applied
the test to blood samples taken from
400 patients with suspected brain
tumours at the Western General
Hospital in Edinburgh. In the case
of the most common form of brain
tumour, glioma, the test was 92
percent accurate.
Unfortunately, brain cancer is most
often diagnosed in the emergency
department. However, this test
18 | ISSUE 57 – DECEMBER 2019 Master Investor is a registered trademark of Master Investor Limited | www.masterinvestor.co.ukCOVER FEATURE
“PHARMACEUTICAL COMPANIES WILL HAVE TO
REINVENT THEMSELVES AS MEDICAL-TECHNOLOGY
COMPANIES – AND THAT IS ALREADY UNDERWAY.”
enhances an existing technique called
infrared spectroscopy which analyses Suspended animation that a team of medics had placed
the chemical make-up of a patient's has arrived at least one patient in suspended
blood. Combined with AI, this animation. The technique, officially
technique can identify chemical clues New Scientist reported in late called emergency preservation and
which, cumulatively, may indicate a November that doctors have placed resuscitation (EPR), is being carried
brain tumour. The technique has the humans in suspended animation out on people who arrive at the
potential to be applied to ovarian, for the first time as part of a trial Medical Centre in Baltimore with
pancreatic, bowel and prostate in the US that aims to make it acute trauma – eg a gunshot or
cancer. possible to fix traumatic injuries. stab wound – and have experienced
The University of Maryland School cardiac arrest and lost more than
Action of Medicine, told New Scientist half their blood.
As usual, the early-stage gains in
CGT-therapy developers will be
harvested by the most adept venture Companies cited in this article
capital and private equity companies.
There are a number of listed entities Company Ticker/status
in this space (see the table of
MediSieve Start-up
companies).
BB Biotech is a Swiss-based Genus LON:GNS
investment fund which allocates to Alphabet Inc. (Google) NASDAQ:GOOGL
companies engaged in gene therapy Apple Inc. NASDAQ:AAPL
and cell therapy. Don't overlook
MedoPad Start-up
the mature medical technology
companies such as Smith & Tencent SEHK:700
Nephew (LON:SN) and Intuitive Amazon NASDAQ:AMZN
Surgical (NASDAQ:ISRG). Companies Apeiron Biologics Private
which collect medical data like Facebook NASDAQ:FB
Google, Facebook and Amazon are
Babylon Healthcare Private
now, by that very fact, healthcare
companies. Sensyne LON:SENS
Over the medium to long term the TCR2 Therapeutics NASDAQ:TCRR
rise of gene therapy, cell therapy, Novartis VTX:NOVN
gene editing and biologics may entail
BB Biotech (investment fund) VTX:BION
a significant shift away from classic
pharmacology (ie the production of Bristol Myers Squibb NYSE:BMI
drugs). That could be bad news for Roche VTX:RO
the pharmaceutical giants – but we Freeline Therapeutics Private
already knew that this was a mature
Autolus NASDAQ:AUTL
sector and that returns on capital in
that space are in long-term decline. Adaptimmune NASDAQ:ADAP
Therefore, pharmaceutical companies Closed Loop Medicine Start-up
will have to reinvent themselves as IBM NYSE:IBM
medical-technology companies – and
Kymab/ Under Armour/ Sensoria/ Id TechX Start-ups
that is already underway.
About Victor
Victor is a financial economist, consultant, trainer and writer, with extensive experience in commercial and
investment banking and fund management. His career includes stints at JP Morgan, Argyll Investment Management
and World Bank IFC.
www.masterinvestor.co.uk | Master Investor is a registered trademark of Master Investor Limited ISSUE 57 – DECEMBER 2019 | 19BY MARK WATSON-MITCHELL
portfolio intelligence
The IPO
Market
Alive and kicking or barely breathing?
The IPO market has had a tough time of late. But there are some interesting goings-on
that investors should be aware of. Mark Watson-Mitchell investigates.
With the world's biggest float now What is the IPO process?
underway, there is a fresh focus A company informs the market that
on how the market for Initial Public it is intending to float either through
Offerings (IPOs) is faring. an IPO or as a new issue.
Just looking at the funds raised A prospectus is prepared and
on the Alternative Investment verified before release. This should
Market (AIM) in the third quarter of carry total details of the company
this year shows a lack of investor and its markets, directors, potential
interest or appetite. and risks etc. It will also contain
New and further issues on AIM in details of the company's capital
Q3 totalled £638m, which was 52% structure, and its corporate and
below the corresponding figure in profit history, as well as information
2018. In fact, for the period from on how and why the funds are
January to end-September only expected to be raised.
£2.84bn was raised, a massive 42% Alongside the document's
down on the corresponding period release, a period of publicity will
in 2018. help the investing public to gauge
the investment possibilities.
20 | ISSUE 57 – DECEMBER 2019 Master Investor is a registered trademark of Master Investor Limited | www.masterinvestor.co.ukPORTFOLIO INTELLIGENCE
The IPO will then be open for Prices can go up or down subscription levels can take months,
application, within a specific time There are no guarantees of making years or may never happen.
period, before the offer period profits. Investors can so often be There is, of course, a high
closes, and ahead of allocation. sucked into new issues through dependence on the corporate
The first day of dealings sees either heavy financial-press activity performance of the floated
the shares then admitted to the or fee-earning advisers over-egging companies.
market, often called the secondary values – or even a combination of Hoped-for profit levels upon which
market. both. new issue pricing is based may not
From then onwards, the value Unfortunately, it is very common be achieved. Suddenly turnover may
of the shares are subject to the for a company to raise funds fall within months of the float and
vagaries of investor fashion and on pricing levels that may never profits forecasts will then be slashed,
reaction. be seen again. Price recovery to with investors being left high and dry.
www.masterinvestor.co.uk | Master Investor is a registered trademark of Master Investor Limited ISSUE 57 – DECEMBER 2019 | 21PORTFOLIO INTELLIGENCE
Win or lose the market. Those reserves are said
Recent UK floats that are well to last some 52 years, based on the
under water include Aston Martin “FAR AND AWAY company's own acquired research.
(LON:AML), Airtel Africa (LON:AAF)
and Funding Circle (LON:FCH), THE ARAMCO ISSUE $1tn or $2.5tn valuation?
while others have swum away from WAS PREDICTED TO When the company was marketing
their float price – just like online the possibility of a float around the
stockbroking company, AJ Bell. BE THE WORLD’S world's capital markets, it was said
Conversely, a big performer in the BIGGEST IPO.” to be looking to float 5% of its capital
last year has been one of my February with a $2.5tn valuation.
profile companies – Manolete To put that into some comparative
Partners (LON:MANO), which context, the biggest IPOs to date
floated last December at 180p and The valuations being put on the would be dwarfed. Alibaba was
subsequently peaked at 620p. company by the Saudis themselves $21.8bn of stock, ABC Bank was
was north of $2tn. The Crown Prince, $19.2bn, ICBC Bank raised $19bn, NTT
IPOs are not just a way of Mohammed bin Salman, was pumping DoCoMo was $18bn, Visa $17.8bn,
getting in the presentation, emphasising that it Facebook $16bn, General Motors
Do remember that companies must rate a valuation at a premium to $15.7bn and Nippon Tel was $15.3bn.
float their shares not only to raise the marketplace. In terms of its profitability, its net
development or working capital, but income is almost twice that of Apple;
also to let existing shareholders get The world's lowest-cost three times that of Samsung, Alphabet
out of or reduce their positions in the scale producer and JP Morgan Chase; and five times
float company's equity. Aramco has some 227bn barrels of oil that of Shell and also Exxon Mobil.
Of late, a number of private equity reserves declared and it is one of the Yes, Aramco is mega in everything.
houses have been taking advantage lowest-cost producers in the world.
of public floats to unload all or part of It is the world's most profitable Too clever?
their funding positions. company, with a net income of Is Aramco being too clever, though?
It is always worth checking to $111bn in 2018, which is bigger Certainly, its valuation is staggering,
see how much new stock is being than that of Google and Facebook so many oil industry analysts and
marketed on issue, compared to combined. other players are finding it hard to get
existing holdings. Also, reading finer Estimates of its proved their minds around the anticipated
details in the prospectus will identify conventional oil reserves are even as numbers. Several of their estimates
whether the vending shareholders are high as 261bn barrels. Its production hover around $1tn, while fees-inspired
paying part or the whole of the new capacity is 12.5m barrels a day and it bankers are saying that perhaps
issue costs. is actually producing 10.3m a day. $2.5tn is the right figure.
But there has been a sign of It is already assumed that the We have already seen that its net
investor lethargy of late. It certainly demand for oil will peak some time profits fell by the third quarter to
inspired stockbroking group Shore in the next decade, with estimates just $21.3bn, compared to $30.3bn a
Capital to scrap any current ideas suggesting that by 2030 to 2040 it will year earlier. Already the company has
that it had for maintaining its London be showing a real tail off. promised to pay $75bn in dividend
listing. It had been listed for some 20 But that does not seem to worry over the next five years and it is
years, but recently it has not enjoyed Aramco. It has around 15% of the believed that the Saudi state reduced
good stock liquidity and its valuation world market, which, because of its its royalty income from $20 down to
was poor enough for its board to cheaper production, may well see that $15 per barrel – another measure to
delist from London, while maintaining figure swelling to 20% of the global make its investment appeal that much
its Bermuda listing. market, especially as the higher-cost more alluring.
competitors start to pull back from But will it be enough to pull in the
Just look at Aramco buyers?
The mega-float of Saudi-Arabian
energy company, Aramco, is quite Bad feelings
defying in all its aspects. It all feels too The murder of a journalist in Turkey,
manufactured to me. corruption in the purchase of arms
Since 2016, it has been touting and defence equipment, together
itself around the world's leading with involvement in battles in Yemen,
markets, tickling corporate-banker do not help engender good feelings
appetites with big fees in the offing. towards the Saudi Arabian state.
Tokyo, Hong Kong, New York, London And attacks on its oil facilities in
and other European capitals were September do not help balance ill-
standing on tiptoe trying to be seen feeling, but instead create big doubts
as the only place to float such a as to the company's stability.
monolith. Far and away the Aramco Morgan Stanley, Goldman Sachs
issue was predicted to be the world's and HSBC are amongst the corporate
biggest IPO. rafapress / Shutterstock.com advisers in on the fee division
22 | ISSUE 57 – DECEMBER 2019 Master Investor is a registered trademark of Master Investor Limited | www.masterinvestor.co.ukPORTFOLIO INTELLIGENCE
from the IPO. I understand that as of that amount of money draining out transparency about contract and
the Kingdom owns Aramco, it is of capital markets. reserve issues.
underwriting all of the fees itself and The institutional investors had I can foresee several sovereign
will reimburse the company on the until 4 December to make up their wealth funds needing to be big
float. minds. investors in Aramco, either for
The funds raised through the IPO, In total, around 2% of the investment potential or diplomatic
expected to be more than $25bn, will company's equity is up for sale. calm.
be used to help to diversify the Saudi Thursday 5 December is the day On looking at this IPO and the way
Arabian economy's dependence upon that final pricing will be announced. that it is being handled, I must say that
oil, as part of the Crown Prince's 2030 And that is four times more money I have some very strong doubts.
plan for the future. draining out of global markets. I do realise, however, that given
the way that the global investment
First a local quote then the But who will invest? institutions work today, it means that
world? There have been strong whispers it is almost compulsory that they have
The way the IPO is being handled that the Chinese are prepared to a sizeable holding of their portfolios
provides us with an indication of the invest up to $10bn in the Aramco invested in what will be the world's
company's intentions. First of all, it is IPO, while the Japanese are said biggest and most profitable publicly
being floated on the Tadawul, Saudi to be reluctant to invest due to quoted company.
Arabia's own stock exchange.
In due course, I would expect the
company will seek listings in one
or two of the international capital
markets. That is when the Kingdom
could sell down another 3%, 5% or 7%
of the equity, raising over $100bn in “ON LOOKING AT
the process.
THIS IPO AND THE
Massive prospectus short WAY THAT IT IS
on detail
The 658-page prospectus issued in
BEING HANDLED, I
mid-November was declared to be MUST SAY THAT I
quite short on detail.
Retail investors were given the
HAVE SOME VERY
opportunity to invest, from 17 STRONG DOUBTS.”
November to 28 November. Assuming
say, at a $1.5tn valuation, retail
investors, were offered 0.5% of the
company's equity – well, that alone is a
whopping $7.5bn of funding. Just think
Other London IPOs being considered
I am grateful to Hargreaves Lansdown for a list of IPOs that could be due to be launched. Those companies are
listed below:
Jaguar Land Rover Automotive − the UK's largest vehicle manufacturer, which sells more than one car every
minute.
Tesco Bank is rumoured to be considering an IPO, following the supermarket group's decision to focus on its
core business − either an IPO or a straight sale of its banking operation.
Vue Cinema, which has over 200 cinemas across the globe, could be seeking to float. Some 85 of its cinemas are
in the UK and Ireland. The company entertains 90m filmgoers annually.
Crawford Healthcare, the advanced wound-care maker has apparently been inspired to look at an IPO after
ConvaTec successfully listed.
Darktrace, the cybersecurity start-up that was set up by some Cambridge academics and GCHQ 'spooks', has
been informing early-stage investors that it will be seeking a quote.
CompareTheMarket.com is rumoured to be considering an early quote. As one of the UK's largest price-
comparison sites it would certainly gain attention.
McLaren, the premium, high-performance vehicle maker, could well be looking to go public in the next few
years.
O2, which has over 25m customers, is one of the UK's largest mobile operators. It also owns 50% of Tesco
Mobile. It is suggested that an early listing is on the cards.
www.masterinvestor.co.uk | Master Investor is a registered trademark of Master Investor Limited ISSUE 57 – DECEMBER 2019 | 23You can also read
